Telstra investors likely winners under Coalition plan

Telstra shareholders are likely to be winners from the Coalition’s $20.4 billion NBN plan for three reasons – the network gets rolled out faster, it is less disruptive to existing broadband market share and it leaves Telstra with an ace up its sleeve in the form of the pay TV cable that passes 2.7 million homes.

Having the network rolled out faster is important because it means the payments to Telstra for the switchover of customers from the old copper wire network to the NBN will be paid quicker.

An agreement between the government owned NBN Co and Telstra in June 2011 locked in a payment to Telstra of $11 billion. That amount was the net present value of payments to Telstra over the life of the agreement.

It was broken down into $4 billion in disconnection payments and sale of lead-in conduits, $5 billion for infrastructure payments and $2 billion in other payments.

The $4 billion in disconnection payments were supposed to ramp up to 2014 and then remain steady until 2022.

The total $11 billion benefit is unlikely to change under the Coalition’s plan. Negotiations will be held in relation to various transfers to and from NBN Co and Telstra.

These negotiations will include the details of the change of ownership of the copper wires from Telstra to NBN Co. That is the copper that will connect households to the NBN Co nodes on street corners.

Under the Coalition’s NBN plan the entire network will be completed in 2019, which is two years earlier than the NBN Co fibre to the premises network being rolled out under the federal government.

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The second benefit to Telstra is that a less disruptive rollout of the NBN using fibre to the node means it is more likely Telstra will maintain its market share.

Households will face less disruption because a fibre to the node connection must be switched over when the node is installed.

Under the NBN, there is a choice about switching from copper to fibre during the 18-month period after the fibre passes each household.

That system allows complacent households to put off making a decision, which could lead to delays in choosing between various retail service providers.

Under the existing NBN arrangements, Telstra was facing the loss of significant market share, according to an analysis published by Deutsche Bank. The analysis said Telstra’s broadband market share would drop from 47 per cent to 35 per cent.

The same research said Telstra’s profit margins on broadband would drop from 54 per cent to 21 per cent.

A third benefit to Telstra is that it will be able to keep the hybrid fibre coaxial (HFC) cable which is used to carry pay TV signals and broadband.

Under the original NBN agreement, all Telstra customers on HFC cable had to be switched to fibre and Optus was forced to shut down its cable operations.

Telstra will be able to retain its HFC cable and use it to compete with the NBN fibre to the node network. That fact tells you that structural separation of Telstra’s retail and wholesale business is occurring.

The three NBN documents published by opposition communications spokesman Malcolm Turnbull arguably constitute the most comprehensive policy description ever released by a parliamentary opposition.